Report ndustry

Homegrown brands rise to challenge multinational’s stake on Tanzania’s soft beverage market

By Abel Ndeda

Steadily but sure of achieving growth, Tanzania is becoming one of the most vibrant soft beverage markets in East Africa. The industry is already attracting both local and international companies to join in the quest to quench the thirst of over 63.59 million Tanzanians who yearn for either water, juice, energy drinks, or soda.

Prospects are good, with the World Bank in its economic review of the East African nation noting that despite rapid population growth, Tanzania has achieved relatively strong economic growth and declining poverty rates. Despite the headwinds of the Covid-19 pandemic and the Russo- Ukrainian war, Tanzania managed GDP growth of 4.6 percent, marginally higher than 4.3 percent growth in 2021, according to the Bank.

Generally, on-trade volume sales of soft drinks are very limited in Tanzania while the off-trade volume sales of soft drinks continued to see a strong recovery in 2022, with distribution continuing to expand and life returning to relative normality after the pandemic.

According to Fitch Solutions, food and non-alcoholic drinks account for the largest share of household spending in Tanzania at approximately 29.1% in 2023. Over the medium term (2022-2026), the firm forecasts a strong expansion of Tanzania’s soft drinks sector driven by robust demand for carbonated drinks.

With a projected expansion of disposable incomes, urbanization, and changing consumer preferences over 2022-2027, Statista forecasts the Tanzanian soft drinks segment to amount to US$399.4m in 2023 with an expected annual growth annually of 5.87%. However, the industry also faces challenges such as high taxes, lack of access to finance, and a lack of infrastructure in rural areas. Even with the challenges, the pace of direct local and foreign investments has risen significantly over the last 15 years, with small and medium players continuing to pop up, with some of them growing into significant players.

RISE OF B-BRANDS

The soft beverage industry in Tanzania is dominated by American beverage companies Coca-Cola and PepsiCo. The country seems to be among the few in Africa where Pepsi has the lead over its rival Coca-Cola.

According to a 2020 Sagaci research, 53% of Tanzanian consumers preferred taking Pepsi while just 40% had a liking for Coca-Cola products. The remaining 7% could be the ones lured by a rise of homegrown brands such as Azam and Mo Cola. These brands backed by their deep-pocked parent companies Bakhresa Group and Mohamed Enterprises Tanzania Group respectively have spiced up competition in the sector.

Azam Cola, the first foray into the carbonated drinks market by Tanzanian family-owned company Bakhresa, has inspired many local brands to rise in the competitive soft beverage market that has been majorly flooded by foreign brands. A year and a half after hitting the market quietly, Azam Cola won 30 percent market share bringing in approximately US$90m in sales, said Daniel Hill, Bakhresa’s group sales and marketing manager. Mohamed Enterprises Tanzania Limited (MeTL) flagship brand Mo Cola, named after Mohammed Dewji, Chief Executive of MeTL, is also reported to have taken 3.5% of the market in Tanzania two years later from launching in 2014.

MeTL plans to further shake up the industry. In June 2022, the company announced plans to invest US$1 billion to expand his business and take on the rivals in the country. Group CEO Dewji said that the investment will be made over three to five years, about 15% of which will be deployed to fund operations in neighboring countries such as Rwanda and Uganda. “We are investing heavily into the carbonated soft drink business, where we really want to take on Coke and Pepsi with homegrown brands,” Dewji said. “We are already dominant in some of the brands, but now we are setting up shop everywhere around the country, wherever Coke is present. Speaking in an interview with CNN’s Connecting Africa, Mr. Dewji shed more light on the company’s brands by revealing that MeTL was planning to raise production to 3 to 4 billion bottles in the next 3 years from 1 billion in 2022.

Bharat Thakrar, former Chief Executive of Kenya-based advertising and marketing firm WPP-Scangroup, calls these local companies ‘B-brands’ because they tend to represent a lower tier of competition. Historically, he averred that B-brand products have been underpriced, with firms investing little in marketing. “They’re creating that brand love and brand equity. They’re local, they’re low priced, [and] in terms of quality they’re as good as the top brands,” said Thakrar.

Energy And Malt Drinks Take A Central Place

Energy drinks are also immensely popular in Tanzania. As early as 4 a.m. in Tanzanian bus terminuses, many bus drivers and their assistants are seen with an energy drink in their hands just to tune up their brains and keep them sharper for the day’s activities. Most of the drinks are brands that have sprouted recently and are fairly priced like Azam, Vimto, and Tzinga. According to a study by the Tanzania Food and Drugs Authority (TFDA), energy drink consumption in the country has increased by over 50% in the past decade. The TFDA study found that the majority of energy drink consumers in Tanzania are young men between the ages of 18 and 35. The study also found that energy drink consumption is more common among urban residents than rural residents. Packaged mostly in PET bottles and costing less than a quarter of the cost of their bigger rivals, these entrant brands have been readily accepted by consumers in demand for an energy boost but lacked enough money for the pricier drinks.

In the premium segment, Red Bull is still the most popular energy drink in Tanzania, with a wide distribution network and strong brand recognition. Monster Energy is a close second to Red Bull in terms of popularity in Tanzania. It is known for its high caffeine content and is popular among young men looking for a boost of energy. Rockstar is another popular energy drink in Tanzania. It is available consumer demand for non-alcoholic options. These drinks are made from malted barley, water, and sugar, and are often flavored with fruit or other natural ingredients. Almost all major home grown beverage companies have a malt drink in their portfolio. Bakhresa has Malti while MeTL has Mo Malt which is available in two variants. One popular malt drink brand in Tanzania is Chibuku, produced by Tanzania Breweries Limited (TBL). Chibuku is a traditional African malt drink that is enjoyed by people of all ages. It is available in a variety of flavors, including banana, pineapple, and vanilla. Other popular brands of malt drinks in Tanzania include Castle Lite, which is produced by SABMiller, and Ndovu, which is produced by Serengeti Breweries Limited which is part of East African Breweries Limited. Efforts of companies like TBL to expand their distribution networks and reach more consumers, especially in these areas are really paying off.

Water Business Gathers Momentum

In recent years, bottled drinking water has emerged as an easy way through which potable water is supplied to consumers, especially in cities and urban areas. According to a report by Research and Markets, the market for bottled water in Tanzania is projected to reach US$205 million by 2025, growing at a CAGR of 7.8% during the forecast period from 2020 to 2025. The dramatic rise in the consumption of in a variety of flavors and is often marketed as a party drink. Power Horse which is produced by the Tanzania Distilleries Limited (TDL) and B-Energy are local energy drink brands that are becoming increasingly popular in Tanzania. The latter is known for its fruity flavors and is often consumed by women and children while the first is known for its affordable price point than many of the international brands and is often consumed by low-income consumers and manual workers.

The energy drinks market in Tanzania is projected to grow at a compound annual growth rate (CAGR) of 9.1% over the analysis period of 2021 to 2027, according to data and analytics company StrategyHelix. The increasing popularity of various product offerings, growing consumer inclination toward reduced sugar & sugar-free beverages and increased promotional and advertisement strategies by the manufacturers are expected to boost the market growth in the coming years.

Malt drinks are, on the other hand, trying to catch up to the more established drinks. Their popularity is driven by bottled water is attributed to its affordability, convenience, consumer connotations of higher social status, and the prevalent conception that it contains fewer contaminants. Bottled drinking water is also perceived to taste better compared to tap water and is served at many organized gatherings, such as meetings, parties, workshops, and conferences.

The market is dominated by large players including Bhakresa (Uhai Drinking Water), MeTL group (Masafi mineral water) and IPP group (Kilimanjaro Drinking Water). Given its low barriers to entry, the market is however saturated with other medium and small scale brands. Asoko insights in its 2019 research documented a total of 25 drinking water companies of varying sizes. Combined, these businesses compete for water market that is forecast to reach 198.23 million, according to Market Research. Growth is also robust with average consumption per capita reporting a CAGR of 7.51% per annum in the medium term (2025).

Juice Category In Nascent Stages

Unlike CSDs, the Juice market in Tanzania is still in its nascent stages of growth. According to Market research, the juice market in Tanzania is forecast to increase at a CAGR of 11.66% per annum for the period 2020-2025 to reach US$33.50 million (in retail prices). Leading brands include Azam Juice by Bahkresa Group, and Minute Maid by Coca-Cola. Although demand is relatively low compared to other soft beverages, the sector is still competitive with upcoming players like Sayona Drinks and RimJim beverages disrupting the market with their own brands Frutty’s and RimJim respectively.

As the industry is still small, substandard products are quite common in the market. Tanzania Bureau of Standards (TBS), in 2021, was forced to destroy about 1,300 cartons of substandard juice in the Morogoro Region. The action by the country’s quality watchdog followed a crossexamination of the juice marketed as ‘’Into Orange’’ that revealed high levels of contamination resulting from the company operating in an unhygienic environment. The new findings by TBS was just the tip of the iceberg. “During our study, we found that most of the fresh juice sold on the streets contained the Escherichia Coli bacteria that can cause a wide range of diarrheal diseases to consumers,’’ said Ms. Edeltruds Simforian who is an environmental health scientist from Dar es Salaam.

Adding Sustainability In Production

Whereas soft drink producers are responsible for a huge proportion of Tanzania’s plastic waste problem, the country’s circular economy is not as developed yet. The recycling quota for plastic waste in Tanzania totals just 5 percent of all produced products. No deposit system is yet in place, but many collection points for used PET bottles pay collectors by weight. The raw commodity is then sent for reuse to local recycling companies.

To improve recycling rates, leading beverage companies - One Products & Bottles (MeTL Group), Coca-Cola Kwanza Ltd, SBC Tanzania Ltd. (Pepsi), Nyanza Bottling, Bonite Bottlers, Sayona Drink, Cool Blue Tanzania Pure Drinking Water and Silafrica came together to launch the Polyethylene Terephthalate Recycle Company (PETCO). By coming together the companies aim to collect and recycle 12.5 million tons of plastic waste, setting a course to conserve the environment and boost the economy.